Urban Regeneration through Environmental Remediation: Valuing Market Based Incentives for Brownfields Development

This project will examine the relative importance to developers of different market-based mechanisms and other incentives (MM&I) for promoting the remediation and reuse of brownfields, i.e., previously used and potentially contaminated urban sites. Location-based development incentives have been used for decades, but their actual contribution to real estate investment decisions and to improving environmental quality and stimulating infill growth in urban areas has not been systematically measured. This research will contribute to the design of more efficient and effective interventions by determining the preferences of developers for three dominant MM&I tools for promoting brownfields redevelopment?liability relief, regulatory flexibility, and direct financial aid.
Approach: This research will use developer surveys to determine the value that developers place on each of these tools. Researchers also will also survey state and local economic development and environmental agency officials to find out what they believe the preferences of developers to be. Researchers will develop and deploy a survey instrument asking respondents to engage in conjoint choice experiments. Specifically, real estate developers will be asked to indicate which choice they prefer among (hypothetical) residential redevelopment projects described by site conditions (contamination and prior/current uses) and by government intervention attributes, including relief from liability for cleanups and environmental damage, more flexible cleanup standards, and direct financial incentives. The researchers will use the responses to these choice tasks to infer the rate at which developers trade off various MM&I measures, the value of marginal changes in the attributes, and the value of a proposed policy package. This research will study redevelopers operating in four cities chosen to cover a range of property market conditions. In each of these cities, the sample will be as representative as possible of the universe of real estate developers active in urban residential infill. Their preferences will be examined and then compared with how public officials think real estate investors value incentives, to determine if public policies provide needed market inducements.
Expected Results: The study will provide a clearer picture of the value of a set of widely used, but under-examined, MM&I incentives. The interventions most likely to induce developers to invest in reclamation of brownfields will be identified. The survey instrument developed will be replicable for further generalization.

Objective:
The objective of this research project is to examine the relative importance to developers of different market-based mechanisms and other incentives for promoting the remediation and reuse of brownfields (i.e., previously used and potentially contaminated urban sites). Although this objective has not changed, we have slightly expanded the research project to determine the extent to which developer rankings of different incentives and investment conditions are misperceived by public officials.

Progress Summary:
Progress has been made on the design of the conjoint instrumentation and on the identification of a population to be sampled. This progress has been affected, however, by a series of unexpected problems that were encountered in implementing the original design, resulting in some modifications. Progress is thus described here in terms of the problems encountered and how they were overcome.

Identification of a Universe of Developers to Study

First, implementation meetings with the project developer advisory panel made it clear that developers do not specialize in locations or in types of investments to the extent expected, so the geographically focused sample could not be drawn. Therefore, a national sample was required. Second, there were no consistent means available for identifying developers who were doing brownfields or infill investment. A broader universe needed to be surveyed with some allowance for positive self-selection. As a result, those doing infill, our true study target, would be more likely to respond. Third, defining who in a firm actually makes development decisions is more complex than expected, with key decisions often outsourced to advisors. Therefore, an internal organizational respondent selection process could not be implemented. We were looking for membership lists that could provide names of people who were likely to be developers and intimately involved in the development decision. This led us to the Urban Land Institute (ULI) membership lists, which we discovered could be accessed online because the principal investigator was a member. Selecting from that 17,000 member list, however, was going to be difficult, so we ended Year 1 of the project building a cooperative relationship with ULI senior staff (one of whom was on our advisory panel). This larger potential panel, combined with the use of a national, nongeographic-specific sample, has made it possible to commit ourselves to a much larger mail survey than previously budgeted.

Classification of Differences Between Developers When They Do Respond

ULI senior staff members and our other advisory board members noted that it is effectively impossible to come up with standardized common measures for the size of a developer; and the "typical project size" of a developer is almost meaningless. Some developers operate shells, contracting out all functions from detailed physical planning to implementation. Other developers keep all functions in-house, and the range between is diverse. Therefore, employment size is meaningless as a measure, but so are annual revenues, because some developers build and hold (renting or leasing) while others develop for sale and, as a result, show very different income and asset profiles. Finally, project financial scale is affected by huge differences in land costs across the nation, so a $10 million project may be small in Denver, CO, or the Washington, DC metropolitan area, but seen as larger in the Cincinnati, OH, Louisville, KY, or Indianapolis, IN, contexts. As a result, we had to recognize the fact that all projects presented would be, in some sense, "hypothetical" to all respondents. The key problem we are working on is making certain the project choices are perceived as "real." If the choices do not apply to the developer, can the respondent envision a colleague/competitor facing these conditions?

In discussing the conjoint question instrumentation and overall survey design and administration options, we had to address unforeseen issues. First, with a population of specialized professionals with their own languages and verbal shorthands, we could not utilize objective focus group facilitators because they could not follow the jargon used by our potential participants. Second, we could not expect full disclosure and open discussion among a group of developers in an area from which we could potentially draw a focus group, because they were in competition with each other and would not be willing to describe their decision processes to each other. As a result, we did extensive data collection from developers through indepth personal interviews conducted by the senior investigators. (Developers in the Washington, DC area, as well as those based around Louisville, KY; Cincinnati, OH; St. Louis, MO; Indianapolis, IN; and Denver, CO, were tapped for their insights into brownfield redevelopment markets, reactions to questions, and other information.) We discussed the types of incentives to which they would respond and refined a list of some 10 intervention elements and types, not all necessarily commensurable, and some vary with values difficult to explain in a simple choice presentation. Refining the choices is the current main focus of the instrument design effort. This work was complicated by many factors we had not expected:

1. A developer noted that instead of cash subsidies, he would be equally satisfied with "fee waivers of equivalent value" (an in-kind contribution). This left us wondering if we had to vary the cash/in-kind form of financial support of different types.

2. Even cash support is not all commensurable. Financial aid for site assessment covers costs that would be incurred even if the project was rejected by the developer, while other aid is only available if the project goes forward. Therefore, we agreed we would actually work with two different monetized attributes in the final choice set.

Simplification of the Set of Market Incentives To Be Tested

This discussion deals with a set of procedural and methodological issues that arose after the initial design efforts that complicated our work. The first real difficulty involved simply getting investigators to agree about which specific market mechanisms to test. We originally proposed to examine: Financial Incentives (direct financial aid), Regulatory Flexibility, and Liability Relief. These three elements have several dimensions and make the needed simplification for discrete choice questions very difficult. The investigators' discussions were made more complex by a division among them: Drs. Meyer and Wernstedt had experience with the brownfields issues and developers and investors' responses and concerns, while Dr. Alberini and instrumentation consultant Kevin Boyle (University of Maine) were more concerned with testing the theory about market incentives of the types previously tested. As a result, coming to an agreement on issues such as whether or not accelerated review of applications for approval of site environmental response plans constituted a relevant and measurable incentive became difficult, especially when "regulatory relief" also could mean lower standards for performance. Such lower standards, however, could then raise the importance of the liability relief if the cleanups proved to be inadequate in the future. We resolved these issues through a process of aggressive simplification; tested for realism with our indepth interviewees in our original meeting and followup phone and e-mail contacts. As a result, timing was dropped as an issue (getting rezoning permits can take longer than review of site cleanup plans, which can be pursued simultaneously), and process factors (hearings requirements, privileges offered on approval of responses, etc.) were given more attention in addition to the financial supports. In Year 1 of the project, we made substantial progress addressing a series of methodological problems that few researchers have attempted to address, including identification of developers as distinct from other parties involved in land regeneration or land use conversion and those doing construction or building rehabilitation, and derivation of methodologies to get those parties to do more than rank order or assign importance values to different public sector development promotion offers.

Future Activities:
In the next year, the researchers plan to complete project data collection and analyses. They also plan to prepare publications and make presentations of our findings. Additional future activities include:

• Preparing opinion survey instruments for public officials, especially Likert scale questions about the brownfields investment scene, that can be administered to both officials and private developers (June-July 2003).

• Conducting a survey of local development officials about what incentives they believe attract developers to brownfields, and which incentives do not (August-September 2003).

• Conducting a series of extended interviews with state environment and development officials about the incentives they offer to promote reuse of brownfields, and why they do or do not offer different types of programs (July-September 2003).

• Completing the design and pretesting of the developers' conjoint survey (September 2003).

• Conducting the developers' conjoint survey using a 2,800 name selected list from the ULI. (Conducted using a standard Dillman protocol for mail surveys in October-November 2003.)

Analyzing the resulting data, including efforts such as: (1) conducting the conjoint analyses of the developers' responses, (2) comparing the developers' and public officials' Likert choice responses, and (3) comparing the public officials' predictions of developers' responses to incentives to the valuations revealed by the conjoint analyses.

• Trade publication and dissemination to practitioners through vehicles such as: Urban Land (the monthly journal of ULI), Commentary (the journal of the International Economic Development Council [IEDC]), Planning (the monthly publication of the American Planning Association [APA]), and Brownfield News (the monthly publication of the National Brownfields Association [NBA]).

• Working Papers and Practice Guides, adding to the series already maintained online and in print by the Center for Environmental Policy and Management at the University of Louisville and by Resources for the Future.

• Presentations discussing both methodological issues/innovations and research results at academic conferences, including a number for which at least some results will be available prior to submission deadlines. North American academic conferences we plan to attend include the International Society for Ecological Economics (July 2004), the International Urban Planning and Environment Association (September 2004), the Association of Collegiate Schools of Planning (November 2004), the Allied Social Sciences Association (January 2005), and the Urban Affairs Association (April 2005).

Presentations at practitioner conferences include anticipated participation in the meetings or seminars of ULI, IEDC, APA, NBA, International City-County Management Association, the U.S. Environmental Protection Agency Annual Brownfields Conference, and the Economic Development Administration Annual Conference of the U.S. Department of Commerce.

This array of anticipated publications and presentations largely is predicated on our expected completion of the core work during Year 2 of the project. We expect to meet that schedule.

Objective:
The objective of this research project is to examine the relative importance to developers of different market-based mechanisms and other incentives for promoting the remediation and reuse of brownfields (previously used and potentially contaminated urban sites). This objective has not changed, except that we have slightly expanded efforts to determine the extent to which developer rankings of different incentives and investment conditions are misperceived by public officials.

Progress Summary:
A developer survey instrument, pretesting with individual developers, both face-to-face and with mail instrument administration, and further revisions were conducted in summer 2003. The final survey format was a 16-page bound 8½ x 11 brochure, with illustrations. There were 64 different instruments, 2 sets of 32, 1 set for each of 2 different real estate market conditions, with each of the 32 instrument versions displaying 5 different pairs of conjoint choices on brownfield incentives offered to developers.

The survey was administered to 2,600 members of the Urban Land Institute (ULI), a sampling frame provided by the ULI to target developers in their membership. Although the ULI provided a longer list of members, care had to be taken not to survey multiple individuals from the same firm with the same decisionmaking logic (and with the confusion that different versions of the survey arriving at the same address would have caused). This is a problem inherent in using the membership lists of organizations with individual, not institutional, members. A further problem arose with respect to members in different offices of the same development firm, but possibly spanning the nation in their locations. The prospective mailing list was modified using the following protocol:

For multiple members in the same firm at the same address, we selected only one, trying from any listing of job titles to pick the one with the greatest seniority or most influence over investment project decisionmaking.

For members in the same firm with multiple addresses, we sent one to each address because investment selection decisions tend to be decentralized in firms with multiple permanent offices, often with each office a separate profit center.

Richard Rosan, President of the ULI, made the initial contact with each prospective respondent, informing members that the survey was coming and encouraging their participation. This was followed by a mailing of the instrument with a cover letter from Peter Meyer, the project principal investigator, with an enclosed postage paid return envelope. Survey administration was initiated in October 2003 and completed in January 2004. In that time period, 314 surveys were returned, a response rate that compares favorably with membership surveys on specialized topics not of interest to all members that are conducted by the ULI.

Data collection from public officials was initiated in June 2004 and continued through the summer as the private developer instrument was refined. The officials were initially identified from economic development agency rosters across states and their number expanded through snowball sampling. Surveys mailed to developers mirrored the Likert questions (dealing with brownfield site characteristics, environmental policy impacts on development, and similar issues) asked of developers to permit direct comparisons. Although the conjoint questions were not administered to public officials, they were asked to rank order a variety of incentives analogous to those in the conjoint forced choices administered to developers. Rather than the 20-30 public official interviews originally envisioned, we surveyed some 100 public officials, although not all responses proved usable.

Data entry on the developers’ survey had to deal with extensive marginal notes from many respondents, information we did not want to lose. All those data were recorded in alphanumeric fields, linked specifically to the question to which the comment appeared to be directed. Additional problems were posed by respondents violating requirements that certain firm “demographics” questions had only one answer, but multiple were offered by the respondents. In this case, a 1-2-3-4-5 coding for the 5 choices, for example, was modified for multiple responses by coding a 13 for both 1 and 3 being selected, or 245 for numbers 2, 4, and 5 being marked as applicable. The numbers of such multiples turned out not to be problematic, but the method was developed when the issue arose in the first 20 responses selected for cross-checking the appropriateness of the coding scheme adopted.

Data reduction and coding occupied much of spring 2004. Although preliminary statistical findings were completed on the developers’ survey by May 1, 2004, the delays in identifying a source of respondents for a survey of developers and in refining the complex set of incentives into a set that could be approximated with conjoint questions meant that the analysis could not be completed within the intended time period.

Central to the survey timing problem was the work cycle of developers over the calendar year. Fall is generally a slow period, and we were advised not to attempt survey administration before Labor Day, at the earliest, with the ideal period roughly from October 1 to Thanksgiving. The instrument was, in fact, delivered in that time period, with a reminder card to nonrespondents mailed in early November. Given available resources and evidence that some developers intended to reply but had misplaced the instrument (calls and e-mails requesting additional copies of the survey), we sent another reminder card before Christmas and delayed initiation of major data entry efforts until mid-January to accommodate late responses—of which we got approximately 20. (It should be noted that those requesting new copies of the survey were sent the same version of the survey that had originally been sent to that person; the random distribution process produced almost identical numbers of each of the different survey instruments in the response set.)

The instrument used for the developers clearly worked and performed as anticipated. No bias towards first or second option in the forced choices was evident, statistically significant results were obtained easily, and findings generally conformed to expectations derived from theory and other empirical data. Two very different products were undertaken and completed about the end of Year 1 of the project: (1) a paper for an academic presentation at a conference in Europe; and (2) a writeup of basic findings for Urban Land, the monthly journal of the ULI, provided in return for the assistance that organization gave the data collection effort.

The major impediment to more rapid exploitation of the data has been scheduling the activities of three different people, all of whom have extensive research commitments other than this project. Vacations also have caused some delay, as has distance, because the principal investigator is not in the same metro area as the other two senior investigators. These are, however, the inevitable costs associated with the benefits to be gained from combining the expertise of different parties to undertake innovative research.

Other issues arose that were associated with the use of conjoint analysis to interpret the decisionmaking of experts and the division of labor necessitated by the distribution of expertise of the researchers, but these issues have not impeded analytical progress, although they may have contributed to delay of the project.

Use of forced choices by professionals with more expertise in their decision processes than any of the researchers posed problems in instrument design, as well as in interpretation of results. Our ability to interact with ULI personnel helped overcome this difficulty, as did the extensive network of contacts with developers that the principal investigator could employ to get feedback on the test administrations of the instrument.

The conjoint analysis specialist and the consulting conjoint instrumentation specialist had to deal with policy and investment decisions unlike any they had studied previously. This barrier limited the contribution of the consultant to the instrumentation because his expertise dealt with asking a generalist population about issues with which they might not be familiar. The analysis specialist committed extensive effort learning about the issues and decisionmaking processes in this applied policy arena and thus has played a major constructive role in the analysis as a whole, going well beyond a technical role.

The lack of experience of the principal investigator with the statistical tools involved in the valuation of different incentives for developers to invest in brownfields led to some confusion in initial instrumentation and design. As the principal investigator learned more about the limitations and capacities of the method, this problem ceased to be a significant issue.

The divisions of labor associated with the specialist expertise of the researchers and the need for collaboration in data analysis prior to preparation of written and oral products has the inevitable effect of slowing the preparation of elaborations of the initial simple findings.

Overall, the experience with collaboration of the different specialists involved in this project suggests that allowance for additional elapsed time (and possibly more personnel time specifically devoted to the project) should be made for research efforts that rely on a mix of disciplines or types of expertise.

Future Activities:
We will continue analysis, and many more presentations and publications are expected. Four journal articles are anticipated at this time: (1) the results of the ULI survey; (2) a comparison of private developers and public official survey Likerts; (3) a general paper on the incentives that really attract developers; and (4) a paper on the value of incentives, how they vary among developers, and the gaps in perceptions. Given the investigators’ summer schedules, additional analysis and dissemination plans will be made in fall 2004, a period in which the principal investigator has a sabbatical. A book planned for preparation during that leave will utilize some of the project findings in a discussion of development incentives for brownfield revitalization.